Equities see FIIs make merry; who wants retail investors?

The Indian equity market is becoming more institutionalised. In the last one month Rs 20,000 crore was raised from the market through the qualified institutional placement (QIP) route.

The coming of the new government has seen institutional investors returning to the Indian market. They have pumped in fresh money even in companies which have huge debts on their balance sheet.

But there is no sign of the retail investor who has already missed the initial hope rally that saw the BSE Sensex surge to a new all-time high crossing the 26,000 in July from 21,000 in January.

There isn't any sign of retail investors in the financial market and there aren't any serious efforts being made to even bring them to the market. Neither the government, nor the regulators nor corporate India really wants retail investors.

The government doesn't want retail investors as it fears any mishap in the market would require it to clear up the mess. The same goes for the regulator which is tightening regulations rather than focusing on growth of the market.

Regulators time and again have maintained that they have taken reasonable measures to prevent any mishap and ensure that investors have trust in the market. But this has made market procedures more cumbersome than before which puts off retail investors from coming into the market. Investor education programmes too haven't yielded much. The Harshad Mehta scam, the Unit Trust of India (US-64) mess or the Ketan Parekh scam may be a decade or two old but they remain fresh in the minds of investors.

The same goes for corporate India. When banks and financial institutions aren't willing to touch them, they tap the market to get retail investors' money. But when it is time to pay back they aren't willing to share profits. For instance, a well known Gujarat-based oil refinery and marketing company raised money from the public for building its refinery. But when it is time to share profits with investors, it plans to delist from the stock exchange. The group has never thought of shareholders' interest. Sometime back the group de-listed its steel business from the stock exchange and attempts are on to de-list its shipping business too.

Similarly multinational companies which got listed because they wanted to do business in India are slowing delisting from stock exchanges.

In some cases like Cadbury's, we have seen some investor activism. But even after 10 years, the minority shareholders are still fighting to get the right price for their shares. Cadbury de-listed its stock in 2003.

Those who couldn't fight have been squeezed out. Section 100 of the Companies Act has been a curse for the investor. It is often used for easing out minority shareholders. Section 100 permits a company to extinguish capital. In some cases the companies, after delisting, have increased the face value of their shares and cancelled the shares of minority shareholders on the grounds that they have become fractional shareholders.

What's disappointing is that no court or regulator can help these investors. Last August, the Rajasthan High Court gave a ruling in favour of Rayban Sun Optics for reduction of capital by canceling the equity shares held by minority shareholders who represented 6.68 per cent of the total equity share capital of the company. Incidentally the reduced share price is Rs 137 per share which is only three rupees lower than the delisting price of Rs 140 per share which was announced in 2008.

On one hand the courts have been maintaining that valuation is an art and not an exact science and merely because it is not acceptable to the objectors it shouldn't make any difference until or unless it is found that the price paid to the minority shareholders is unfair and inequitable. In case of Rayban, the courts didn't find anything wrong in the valuation method that determined Rs 137 per share as against a demand of Rs 293 per share by some objectors.

But when it comes to the IPO market, there have been so many companies whose shares after the issue were trading at a discount, but there wasn't any action from the regulator or government against the company or the investment banker for over-pricing the issue.

Statistics have clearly indicated that retail investors are long-term investors. In fact it is seen that many retail investors that have invested in IPOs have never exited from the stock. Despite this retail investors have been taken for granted.

Sebi chief UK Sinha maintains that he wants retail investors to come through mutual funds and on the other hand the mutual fund industry is treated as a foster child. The regulator wants to control the commission paid to agents and distributors, but on the other hand he does not want to regulate them.

Though the Budget allows mutual funds to come out with retirement-linked plans for investors, it is time retail investors became masters of their own fate.

The BSE Sensex has touched 26,000, but the market still has sufficient strength to climb higher. Investors could buy Nifty ETFs (exchange traded funds) and sit tight to make a decent killing in the next two to three years. By buying Nifty ETFs they will be participating in India's growth story with diversified stocks in their portfolios and more importantly will not be worrying about stock rebalancing.

The ETFs may not guarantee the highest return but certainly they will be better off as against staying out of the equity market.

Meanwhile, in the coming week, the equity market will continue to be dictated by global cues and the June 2014 ended quarterly corporate performance.